What Drives Insurance Premiums?


Once a year we have to write a dreaded check to our insurance agent for insurance coverage. In my past article about the 4 Cs of insurance , I introduced that one of the Cs is cost. In the insurance world, we refer to the cost of insurance as the premium. Have you ever wondered how insurance companies come up with the premium amount for the coverage you purchase? When I attend the various restoration and cleaning industry conferences, I like to ask, “What is one thing you dislike about insurance?” I’ve heard a handful of interesting responses over the past 10 years, to say the least, but the most common response is that the cost of insurance is too high.

Contractors are not alone in this sentiment; I’ve never met anyone who has felt that they’re not paying enough for their insurance. However, like taxes, the cost of insurance is simply another one of those necessities in life.

Perhaps getting a better understanding of how insurance companies come up with the premiums they charge can make this pill a little easier to swallow. The determination of risk by the insurance company, also known as rating, is the process of how underwriters decide on the premium to charge for the insurance coverage being offered. The determination criteria vary by the type of insurance coverage offered. For example, an auto policy would have different criteria than a General Liability policy or property insurance; however, there are some similarities.

Insurance is a costly but necessary business expense. Read on to find out what factors are impacting the cost of your insurance premiums.

Four Factors of Insurance Premiums

By Kari Dybdahl